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Financial responsibilities

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Delegation of authority

This is where you set out who is accountable for the strategic financial functions and related activities, like approving financial strategy and policies, and who will actually implement them.  Some of this will be defined in your constitution, so check that anything you put into your manual complies with that.

The template has a suggested list of functions and suggests where they might sit.  You can work through this, adapting it so that both the functions and who does them are relevant for your organisation, in particular when it comes to preparing and reviewing information.  

Many organisations benefit from having a finance sub-committee which takes on a lot of the detailed finance work for the trustees and provides much needed support to the finance function, and you might want to think about this.  Potential disadvantages of this structure are the extra layer of administration and the potential for other trustees to then avoid financial matters. It very much depends on the people involved in your organisation whether this is a structure that would suit you - but as with any committee, if you set it up, be very clear about its function, and review how it is working regularly (eg annually) to see that it is adding value.

You might also find a delegated authorities form useful.  This picks out and summarises the limits of authority for common actions like ordering goods or amending budgets, from the different sections of the Financial Policies and Procedures Manual and is more easily referred to than the entire document.

Reserves policy

Along with your general financial objectives, your reserves policy sets the tone of the financial approach of your organisation, and you want to demonstrate a thoughtful and assertive use of your assets.

Often, however, reserves policies are paper exercises for compliance purposes because reserves are seen as inert money you can’t use – a ‘rainy day’ savings fund in case of dire emergency which stereotypically the accountants want to preserve, and the operational staff want to spend.  It can also seem pointless to be thinking about saving up in an environment where you struggle to break even, which is why the suggested policy is written in terms of purpose – ‘to protect the continuity of our core work’ - rather than ‘to cover three months of unrestricted spending’.

Your organisation will need to go through each of the criteria and put a number to it, or perhaps a range of numbers.  Here are some things you may want to consider:

To provide a level of working capital that protects the continuity of our [core] work
  • What is the core work that we would want to protect?
  • How much does that cost?
  • Do we spend evenly or are there peaks and troughs?
  • How is it funded?
    • Level of security/predictability
    • Arrears/advance
    • Regular/irregular
To provide a level of funding for unexpected opportunities
  • What opportunities have arisen in recent years?
  • What capacity could we have for new opportunities?
  • Results of horizon scanning from annual planning
To provide cover for risks such as unforeseen expenditure or unanticipated loss of income
  • Review of risk register
  • Review of recent years’ experience

It is also a good idea to bear in mind the disclosure requirements on reserves for the trustees annual report and make sure that any policy easily allows you to comply with these.  You have to state:

  • the level of reserves held
  • why they are held
  • the purpose of material designated funds and if for future expenditure, the likely timing of that.

Like any forecasting exercise, this isn’t easy but there is plenty of good guidance to refer to – you could start with:

Conflicts of interest

Your organisation might have a separate conflicts of interest policy, or you may choose to incorporate it into this manual, because the conflicts that arise are frequently financial.

The Institute of Chartered Secretaries and Administrators have produced a sample conflict of interest policy, declaration form and register of interests (pdf, 292kb), which they've given us permission to make available to NCVO members.

Each organisation will manage conflicts of interest differently, the most important thing is clarity about expectations.  The principles that you will have to work out are:

Who should the policy apply to?
  • Trustees
  • Senior employees
  • All employees and volunteers
What would be a conflict of interest in relation to our organisation?
  • Personal financial interest of board member/employee
  • Connection with supplier/received hospitality from supplier
  • Connection with beneficiary
What is the future likelihood of similar conflicts?
  • Is it a one-off?
  • If not, is it likely to impact on that person’s ability to contribute?
How should an interest be declared?
  • Written annual declaration, updated for major changes
  • Declarations at each meeting
How should we address the conflict?
  • Vote taken case by case
  • Person in question:
    • absent themselves from the meeting
    • participate in discussion but not decision

Segregation of duties

Segregation of duties is a basic building block of internal control, implicit in everything, but a term often used without context or explanation. The idea is that the more people that are involved in processing transactions, the less likely it is that a problem will occur.

If one person deals end-to-end with a transaction, for example the purchase of a desk - from making the initial request, through acknowledging delivery, to recording it in the books - there is more potential for error and also possibly exposure to fraud. 

This sounds obvious, but in a small organisation you may find it difficult to achieve, and let things slip because you have one key individual who deals with everything.  In this situation you need to take a risk-based approach when you design your financial processes and identify what leaves you most exposed, then design actions to compensate - the most common being dual signatories on payments. 

The policy is to remind people of the principle when they are designing processes.

Templates

As an NCVO member you can download our financial procedures manual templates.

Page last edited Jan 03, 2018

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